House committee wants South Carolinians to get their money back from SCE&G

Committee is crafting legislation to repay SCE&G ratepayers
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Committee is crafting legislation to repay SCE&G ratepayers
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COLUMBIA, SC

A reckoning is coming for South Carolina’s $9 billion nuclear fiasco.

Fifteen months after two S.C. utilities abandoned their decadelong effort to build two new nuclear reactors in Fairfield County, teams of lawyers will duke it out during a month-long hearing to decide who — S.C. residents or their utility and its owners — will be stuck with those gargantuan costs.

At stake when the S.C. Public Service Commission meets Thursday is how big the power bills of SCE&G customers will be in the future.

The Cayce-based utility’s own future also is on the line in one of the lengthiest and most complex rate cases the PSC ever has held.

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A ruling that favors customers could send SCE&G — once the darling of South Carolina’s business community — spiraling toward bankruptcy.

The PSC’s ruling — likely to be appealed to the S.C. Supreme Court by the loser, regardless — also will affect whether Virginia-based Dominion Energy completes its proposed buyout of SCE&G and its parent company, SCANA.

The hearing also will serve as a month-long forum for competing narratives — from customers, regulators and the utility — about who is at fault for the V.C. Summer project’s collapse.

“It’s pivotal,” said Nanette Edwards, executive director of the Office of Regulatory Staff, South Carolina’s utility watchdog. “Whatever the commission decides, it’s going to impact SCE&G ratepayers for two decades in the future.”

Setting the stage

The PSC hearing is a long time in coming.

SCE&G and its state-owned minority partner, the Santee Cooper utility, pulled the plug on the V.C. Summer project in July 2017 after years of construction delays and cost overruns. The move set off a firestorm of legal, regulatory and political finger-pointing over the state’s largest financial disaster.

The State Law Enforcement Division and FBI quickly opened investigations. The General Assembly convened two special committees that grilled utility executives and regulators over the course of roughly a dozen hearings that fall.

Lawmakers and Republican Gov. Henry McMaster — staring down an election year in 2018 — promised to ensure the millions of South Carolinians who rely on SCE&G and Santee Cooper for power aren’t made to pay higher rates for a nuclear plant that won’t be finished.

When they reconvened in January, lawmakers spent months crafting a plan to slash SCE&G’s electric rates, trying to ensure it could survive a court challenge. SCE&G had obtained nine rate hikes from the PSC to help pay for the project, raising the average residential customer’s monthly bill by about $27.

Ultimately, the General Assembly passed a law to cut that customer’s monthly bill by about $20 until December — saving the utility’s 720,000-plus electric customers some $260 million this year.

But, citing legal concerns, the General Assembly punted the final decision on SCE&G’s future rates — and, by default, Dominion’s proposed purchase of the Cayce-based utility — to the PSC.

A huge task

Now, the same seven-member commission that approved all nine of SCE&G’s requested rate hikes to pay for the V.C. Summer project will be asked to settle the score.

The commission has been criticized as too soft on utilities in the past. But, earlier this year, lawmakers replaced two commissioners and passed a law that strengthens Regulatory Staff, the state utility watchdog.

They also passed a law giving the PSC strict definitions for the words “prudent” and “imprudent,” making it tougher for SCE&G to make the case that it deserves to charge customers for the costs of a long-doomed project. (The utility only can charge its customers for costs that prudently were incurred.)

The hearing is expected to be one of the lengthiest and most complicated the PSC ever has seen. The commission is tasked with evaluating SCE&G’s decision to quit the project, setting SCE&G’s rates and deciding whether Dominion should be allowed to buy the utility and its corporate parent, SCANA.

Commissioners have told the dozens of lawyers involved to prepare for all-day hearings throughout November.

Even then, it may feel like a cram session.

The case involves some 19 groups, including SCE&G and Dominion, Regulatory Staff, the S.C. House of Representatives, businesses that buy SCE&G electricity in bulk, environmental groups and customer advocates.

Those groups have submitted thousands of pages of testimony after sifting through millions of pages of evidence related to the project.

‘Charging our customers through the nose’

Expert witnesses will help each of the major groups illustrate their competing narratives about why the V.C. Summer expansion failed and who should pay for that collapse.

To environmental groups — Friends of the Earth and the Sierra Club — the project was ill-conceived from the start, given the costs, the risk of nuclear construction and a host of other factors. They want the PSC to eliminate SCE&G’s entire $27-a-month nuclear surcharge. They also want the utility to refund the $2 billion it already has collected from its customers.

“We believe that none of the costs were prudently incurred,” said Bob Guild, an attorney for those groups, “and we demonstrate that no utility in its right mind would have chosen to embark on this project from the beginning.”

Customer-focused groups, including AARP and Regulatory Staff, plan to make the case that SCE&G covered up the project’s major flaws — misleading ratepayers, regulators and investors — in order to keep the project alive and the profits flowing.

Each group has its own proposals to slash SCE&G’s rates, based on the specific dates by which they think they can prove SCE&G officials deliberately misled the PSC to win rate hikes. Those proposals include bigger rate cuts than SCE&G or Dominion have suggested.

After Regulatory Staff’s proposed cuts, for example, the typical SCE&G residential customer would pay about $1,280 for the failed nuclear project over the next 20 years.

But the utilities say slashing rates that far could force SCE&G into bankruptcy.

In Dominion’s rate-cut proposals, the average SCE&G customer would pay between $1,700 and $3,000 more for the project over two decades. In SCE&G’s proposals, that same customer would pay thousands more over a half century.

The stakes are high.

“It’s the most important thing we’ve ever been involved with,” said AARP South Carolina state director Teresa Arnold, whose organization represents 625,000 S.C. retirees. “I get emotional talking about it because of the deception that’s gone on with this and the fact that they’ve been charging our consumers through the nose for all these years and lying about it. It’s kind of hard to fathom how much the public has been misused in this case.”

In emails that the groups plan to use as evidence, Guild said: “SCE&G and Santee Cooper were internally acknowledging to themselves how terrible things were. (But) they put the smiley face on everything when they talked to ORS and the commission.”

Other groups — including the S.C. House, Wal-Mart, and the S.C. Energy Users Committee — also will have a seat at the table during the PSC hearings.

‘The whole story’

SCE&G and Dominion, of course, will present a different narrative.

In an emailed statement, SCE&G spokesman Eric Boomhower said the utility looks forward to “the opportunity, finally, to present the whole story in an orderly process so that the Public Service Commission — and everyone else — can gain a full understanding of the facts” as to why the utility canceled the nuclear project and supports the Dominion deal.

The utility’s team of lawyers also must answer charges that SCE&G mismanaged the project and misled the public.

SCE&G also will join Dominion in advocating for the utilities’ proposed merger.

One version of that proposal, presented in January, would see Dominion immediately refund SCE&G’s electric customers roughly $1,000 each and cut power bills by about $10 a month. But Dominion would retain the right to charge those customers another $4,000 for the unfinished project over the next 20 years.

In an alternate plan filed Thursday, Dominion said it instead could drop the proposed $1,000 refunds in favor of a bigger, $20-a-month rate cut. That plan would cost SCE&G customers about $1,700 over the next 20 years.

SCE&G’s original plans for paying off the debt over the next half-century also have been filed with the PSC, in case Dominion withdraws its buyout offer and walks away.

One of those plans would have SCE&G cut its bills by $5 a month. Under that plan, the typical SCE&G customer still would pay roughly $7,500 for the abandoned project over the next 50 years, according to The State’s analysis of available data.

There is a better option, Dominion and SCANA contend. Accept one of the Dominion proposals and approve the Virginia utility’s buyout of SCANA.

“Our plan is not a perfect plan,” said Dominion spokesman Ryan Frazier. “But it’s the best one that has been put forward.”